Socially responsible investment (SRI) funds claim to invest in firms with high social performance and engage with them to push them to improve their social performance. However, based on existing empirical evidence, it remains unclear whether they actually do so. Therefore, to assess whether SRI funds attempt to deliver on their promises, we examine how they respond when firms are targeted by activist hedge funds. As activist hedge funds often get firms to redirect their resources and managerial attention toward their priorities (which are often related to short-term financial performance), there is an impending risk that firms' social performance declines. Given this risk, it is important to ask whether SRI funds fight to push firms to prioritize social performance or they avoid investing in such firms to ensure that they have firms with high social performance in their portfolio. Using the difference-in-differences methodology, we analyze panel data on 462 firms from 2010 to 2022 and find evidence suggesting that SRI funds flee rather than fight. This finding illustrates that SRIs prioritize delivering on their promise of investing in socially responsible firms over their promise of engaging in activism to make firms socially responsible.
